On
December 20, 1996, the FDIC Board of Directors adopted
the Federal Financial Institutions Examination Council's
(FFIEC) updated statement of policy entitled "Uniform
Financial Institutions Rating System" (UFIRS). The
updated UFIRS replaces the 1979 statement of policy
and is effective January 1, 1997. Attached is a copy
of the notice that was published in the Federal Register
on December 19, 1996.

The UFIRS is an internal rating system used by the
federal and state regulators for assessing the soundness
of financial institutions on a uniform basis and
for identifying those institutions requiring special
supervisory attention. Under the existing UFIRS,
each financial institution is assigned a composite
rating based on an evaluation and rating of five
essential components of an institution's financial
condition and operations. The five component areas
are Capital adequacy, Asset quality, Management,
Earnings, and Liquidity.

The basic structure and framework of the existing
UFIRS has been retained. The major changes include
an increased emphasis on the quality of risk management
practices and the addition of a sixth component
for Sensitivity to market risk. As a result, the
updated rating system now will be referred to as
the "CAMELS" rating system. The updated rating system
also reformats and clarifies component rating descriptions
and component rating definitions, revises composite
rating definitions to parallel the other changes
in the rating system, and highlights risks that
may be considered in assigning component ratings.

The new sixth component addresses the degree to
which changes in interest rates, foreign exchange
rates, commodity prices or equity prices can adversely
affect a financial institution's earnings or capital.
For most institutions, market risk primarily reflects
exposures to changes in interest rates. The new
component also focuses on an institution's ability
to monitor and manage its market risk, and will
provide institution management with a clearer and
more focused indication of supervisory concerns
in this area. The Sensitivity component is not expected
to create a regulatory burden on financial institutions.

In July, the FFIEC published a notice in the Federal
Register requesting comment on the proposed revisions
to the UFIRS. The FDIC and the other three federal
regulators also field- tested the updated rating
system between July and October 1996. The attached
notice contains a discussion of the specific changes
made to the proposed UFIRS based on the comments
received from the public and from the four agencies'
examiners.

The Division of Supervision has instructed its examiners
to begin using the CAMELS rating system on all examinations
started on or after January 1, 1997, the date recommended
by the FFIEC in the attached Federal Register notice.
The composite rating and component ratings under
the revised UFIRS will continue to be disclosed
to the institution's board of directors and senior
management.

For further information, please contact your Division
of Supervision Regional Office or Daniel M. Gautsch,
an Examination Specialist in the Office of Policy,
at (202) 898-6912. Specific questions regarding
the new Sensitivity component can be directed to
John Feid, Chief, Risk Management Unit, Office of
Capital Markets, at (202) 898-8649.